Do lease / rent to own properties really exist or is it just a scam?

Asked by Melissa, Northwest, Anaheim, CA Sat Apr 3, 2010

I am trying to find a home in North Orange County and stop leasing. My current lease is up soon and I know I dont have time to buy a house before I move but I dont want to be stuck in another lease if I find a home to buy, I have heard of lease / rent to own but it seems shady.

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Don Tepper, Agent, Burke, VA
Sat Apr 3, 2010
No. Lease-options/rent-to-owns are not scams. They are not shady. They exist. They work. In many situations, they're win-win situations for both the tenant-buyer and the homeowner/seller.

However, from your description I'm not sure you're a particularly good candidate for a lease-option. If the only problem is the time frame--finding a property to buy before your lease expires--there are plenty of other ways to handle the situation. For example, you might be able to get a 3-month or 6-month extension on your current lease. Or you might be able to find another place to live for 3-6 months. Or buy quickly: If you have everything lined up, you can buy in just a matter of weeks.

A little bit about lease-options: They work well when someone (a tenant-buyer) wants to purchase but is unable to. Often the problem is weak credit. Sometimes it's lack of a down payment. A lease-option allows the tenant-buyer to find a home, control it, and lease it for a predetermined time (often 2-4 years). The option portion gives the TB the right (but not the obligation) to purchase the home. Depending on how the option is written, the TB may have the right to purchase at any point during the option period, or maybe only at the end. Usually, the option specifies an exact purchase price, but sometimes it may specify an exact way of determining the purchase price when the option is exercised. Often--though it's always negotiable--the TB pays an upfront option fee that's credited toward the purchase price IF the TB exercises the option to purchase. And often a portion of the rent you pay is also credited to the purchase price.

The couple-year time period gives the TB the ability to clean up his/her credit. It also helps the TB reduce the purchase obligation, since a portion of each month's rent is being credited to the purchase. And if the TB doesn't like the home, then at the end of the lease he/she can just walk away.

Most agents don't understand lease-options, as you can see from the comments below. To give just a few examples: "In this kind of market lease options are far and few between."

That's bull, to put it politely. In this kind of market, there are more lease-options than you could possibly imagine. And that applies nearly everywhere in the country--including your Anaheim, and including Los Alamitos. For example, here's just a sampling from Craigslist for the Los Angeles area: http://losangeles.craigslist.org/search/rea?query=lease+opti…

I wrote a blog on how to find lease-options, which gives a lot of ways to locate them: http://www.trulia.com/blog/don_tepper/2010/03/how_you_can_fi… Believe me, they're out there.

Another comment below: "You would have to put up Option Money, let's say approx. $10-15K and if you don't option the purchase you could lose that money." The amount of the option fee is negotiable. Often it's around 2%-4% of the purchase price of the property. But I've lease-optioned property without paying a penny. (For those of you wondering what the "consideration" was, the consideration was the $17,000 lease I signed.) And yes, usually you forfeit the option fee if you don't exercise the option.

Comment below: "If the property value goes down over the next year, you'll have to renegotiate you purchase price and it may be with the bank." I'm not sure what that means. If the property value goes down, you're in the driver's seat. You can let the lease expire and just walk away. You're not forced to buy the property. Now, if you want to buy the property, you renegotiate with the owner. The bank has nothing to do with it, unless the property's been foreclosed upon. In that case, your option is worthless and you have no more right to purchase anyway. But there are ways to protect yourself if there's a concern about foreclosure.

Bottom line: Lease options aren't for everyone. And I'm not sure it's the best solution for you. But they're great for people who need them, and they're great for owners with vacant properties or properties they've been unable to sell. (In today's market, that covers quite a few owners.)

So, yes, they're legitimate. If you're interested in pursing it further, make sure the Realtor you use knows, understands, and is comfortable with lease-options.

Hope that helps.
2 votes
Leasing To O…, , Dallas, TX
Sat Apr 3, 2010
Yeah Don! Say it loud and proud! ......"Most agents don't understand lease-options, as you can see from the comments below. To give just a few examples: "In this kind of market lease options are far and few between".
That's bull, to put it politely."

Half the fun of getting on here and passing on information to those who are searching for answers or advice is to disprove all the naysayers that bash or don't understand Lease-to-Own deals. I'm just glad you're always around to back me up and vice versa. :)

Melissa......
As Don stated, Lease-to-Own transactions are not for everyone, but if you do your homework and utilize PROFESSIONALS who understand and have successfully completed one....you will be able to make a wise & educated decision. The LAST thing you want to do is jump into something too quickly without looking at all the options ~no pun intended :)

It's the same basic premise of leasing a car from a dealer instead of buying it outright. It's done every day. You put money upfront and you lease the car for a certain amount of time at a certain monthly lease payment. At the end of the lease, you have the option of buying the car or giving it back to the dealership. Now...that's obviously a simplification of the process but it's the same basic idea.

Best wishes!

Darin
Lease-to-Own Professional
Independent Consultant
1 vote
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Adam Brett &…, Agent, Fullerton, CA
Sun Sep 19, 2010
Don gave a great answer - but things are a bit different here in Orange County, CA vs Virginia. Most people out here will not consider a lease option due to the volatility of the market and necessity of selling their home.

Most people selling need the capital for a repurchase or other reason. Second - in a declining market they will realize less at the end of the lease should you choose not to purchase.

If you are looking for a short term solution - there are many corporate rentals which work on a month to month basis.

This will allow you to get into a place immediately - and still leave the option for a purchase without obligation on a long term lease.
Web Reference:  http://www.HomeSoldTeam.com
0 votes
Melissa, Home Buyer, Northwest, Anaheim, CA
Sat Apr 10, 2010
Well so far the links on cragislist seem to be a scam. All want a "fee" to see their listings.
Looks like my best bet will be to downsize from the house I am leasing into an apartment and just save more money for a down payment than I already have ...
0 votes
Emily Knell, Agent, Huntington Beach, CA
Sat Apr 3, 2010
Your best solution is to try and stay in your rental until you're able to close on a house. Talk to your landlord, let them know that you are house hunting, see if you can go on a mo/mo until you can close on a house. Let them know that you WILL be able to still give 30 days notice to move.

In this kind of market lease options are far and few between. You would have to put up Option Money, let's say approx. $10-15K and if you don't option the purchase you could lose that money. If the property value goes down over the next year, you'll have to renegotiate you purchase price and it may be with the bank.
Figuring out what the purchase price will be and what it will be worth in 1yr is guess and then your option money is at risk.

It's tricky. I think my answer above is the easiest and most stress free way for you to go about finding a home.
The next solution is to find a rental where you can rent mo/mo and not get locked in to a long lease term.

Let me know if you have any other questions.
Email me directly at: EmilyKnell1@yahoo.com

562-430-3053 cell
0 votes
Jeanne Feeni…, Agent, Basking Ridge, NJ
Sat Apr 3, 2010
Melissa, these arrangements do exist but they have always puzzled me a bit as well. Generally what I see is a lease with the offer of "right of first refusal" to you to buy at the end of the lease term. Anything more is difficult to arrange - setting a price for one year out?...impossible, and it goes on and on. I would talk with a mortgage rep to see if you are in the position to buy, if you are, then get looking, and in the interim sign a lease with flexible terms, best case month to month.

Best,
Jeanne Feenick
Unwavering Commitment to Service
Web Reference:  http://www.feenick.com
0 votes
Jason Peebles, Agent, Austin, TX
Sat Apr 3, 2010
I can tell you that in the State of Texas, lease to purchase options do exist and they are not a scam. I have seen a few of them, but you have to make sure that the contract is exacting. You would hate to enter into a lease to purchase and find out at some point that the owner has changed his/her mind about selling to you. I would suggest to you that if you do go this route, have the papers looked over by a real estate attorney. Realtors do not give legal advice and here in Texas, it is best to have an attorney draw up these kinds of documents for this particular type of deal and would imagine that in CA, or anywhere else, having an attorney assist you would be in your best interest.
Web Reference:  http://www.JasonPeebles.com
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